Trump’s King Minus Touch

Whatever the president says, the Fed chairman, Jerome Powell, is not the problem.

By Bill Saporito

Mr. Saporito is a contributor to the editorial board.

Dec. 25, 2018

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CreditCreditYarek Waszul

There’s a saying, now associated with the investor Warren Buffett, that if you’re playing poker for 30 minutes and you don’t know who is the fool at the table, the fool is you. Since President Trump once owned casinos, you’d think that he might have caught on by now. Then again, those casinos went bankrupt, an outcome that Mr. Trump blamed on anyone not named Donald Trump.

Now that he’s president, the table stakes are much higher. Except that Americans are the ones who are losing. With the stock market at the brink of a bear territory since September, and the S.&P. 500 off about 10 percent this year, the president continues to insist in tweets, and in conversations with his economic advisers and Treasury Secretary Steve Mnuchin, that everything would be great — if it was not for that meddlesome Federal Reserve Chairman Jerome Powell. “The only problem our economy has is the Fed,” Mr. Trump ranted on Monday. “They don’t have a feel for the Market.”

The only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch - he can’t putt!

The Federal Reserve Board has had the temerity to do exactly what it had signaled for months it would do, steadily raise interest rates to prevent the economy from overheating. The Fed is legally mandated to maximize employment and contain inflation, not to prop up the stock market on presidential orders. Mr. Powell also signaled that the Fed would pause in this rate-raising mode if the economy began to slow. Wall Street was not surprised in the least by this pronouncement.

What surprised Wall Street — what terrifies Wall Street — was Mr. Trump’s inquiry as to whether he had the power to fire Mr. Powell, whom he appointed in February. That injection of uncertainty was then magnified when Mr. Mnuchin announced from his Mexican vacation spot that he had chatted with six big bank C.E.O.s in an attempt to assure investors that there was adequate liquidity in the financial system. Anyone who experienced the Great Recession might recall that merely raising the idea that there might not be adequate liquidity immediately injects doubt into investors’ minds about adequate liquidity, whatever assurances you attach afterward. The Dow promptly had its worst Christmas Eve trading day ever, disgorging 653 points, or 2.9 percent. After a slow start on Wednesday, major market indexes roared back, with the Dow climbing more than 1,000 points, or almost 5 percent.

Mr. Trump was in Iraq, and off Twitter, on Wednesday.

Mr. Trump is King Minus. Everything he touches turns to lead. And everyone else is at fault but him. He can’t understand it. Didn’t he give Mexico and Canada a great deal in replacing Nafta with Naft2? He thinks so, even though the Canadians fought furiously until they got an agreement they could live with; the Mexicans are still on the fence, if you’ll pardon the pun.

And didn’t he win the trade war with China? The president brays that jobs will be moving here from there, which will make the trade deficit diminish. The reality is that the trade deficit continues to climb, mostly because it helps our economy. What is diminishing instead are sales of soybeans to China, once the largest customer for American farmers. In November, China bought exactly zero soybeans from us. Merry Christmas, Iowa. Does this feel like winning?

In Mr. Trump’s snow-globe reality, our days are merry and bright as long as he’s in charge. It’s only when those other fools interfere — the courts, the Fed, Congress, whoever is chief of staff — that things go wrong. Thus the government shutdown that he bragged he would own he now says belongs to the Democrats. No one is buying that one, not even in his own party. And no one is buying his $5 billion Mexico wall, either. And that includes the Mexicans. Nor should they. The number of people entering the United States from Mexico has been declining for a decade, but Mr. Trump has now wasted hundreds of millions of taxpayer dollars placing American troops in Texas to protect us from an immigration threat that doesn’t exist.

While a paralyzed federal government is not yet damaging the economy, the damage from Mr. Trump’s other personal policy perversions is piling up. On its own, the economy, while clearly slowing, is doing well enough and will probably continue to do well enough with minimal fine tuning. Mr. Trump complains bitterly that Mr. Powell is going to turn him into Herbert Hoover by doing what the Fed is mandated to do. But what turned Hoover into Hoover is a Federal Reserve that did nothing and a Republican Congress that conducted a disastrous trade policy rife with tariffs.

The really scary part, if one continues this historical comparison, is that the Great Depression was ended not as much by smart economic policy as it was the end of a failed foreign policy marked by American isolationism in the years leading to World War II. Today, Mr. Trump’s America First posture is behind his abrupt decision last week to withdraw antiterrorism troops from Syria. His own generals — “my generals” — and national security staff have warned that such a retreat could allow the shattered Islamic State to regroup and spread global chaos again.

But what do generals know about warfare? About as much as economists with Ph.D.s at the Fed know about the economy. That is, a lot.